The Lao-China Railway Project

The high-speed railway project between Lao People’s Democratic Republic (PDR) and China claims to be a pursuit to speed up trade, human mobility and economic integration. When completed, it will link Yuxi (a town in China’s southernmost Yunnan province to Vientiane (the Lao capital) via Boten (a small town in Laos in the Luang Namtha province; Boten is at the border between Laos and China). This project is scheduled for completion in 2021 and the new train will be the first of its kind in Laos. Private investments make up sixty percent of financing and the remaining forty percent is split between China and Laos. It is noteworthy that of this forty percent, seventy percent will be shouldered by China and thirty percent by Laos. Could this unbalanced equation be detrimental to the sovereignty of Laos?

Lao PDR is the only landlocked country in Southeast Asia. It is also the smallest and the most sparsely populated state. It is rich in natural resources and 82% of workers are employed in the agriculture sector or self-employed. Job creation was low between 2002 and 2012. Public debt is approaching 70% of GDP. Cancellation of public investment projects has caused government arrears to public companies, adding two percent of GDP to the debt ratio in 2018. Laos has been classified as a Least Developed Country (LDC) with an urgent need for political, institutional, agricultural and financial reform. In 2017, it was identified that the top priorities for Laos were promotion of strategic use of natural resources, responsible management of the environment, investment in improving nutrition to achieve children’s full potential, improvement of the quality of education, placement of public debt on a sustainable path and strengthening of stability in the financial sector. In addition, Laos is expected to invest in infrastructure for growth and inclusion and create good jobs. It has been estimated that ten percent of Laotians migrate for better opportunities due to limited job creation. Lao PDR is a source of illicit trade in wildlife mainly destined for China, which is the former’s main source of Foreign Direct Investment (FDI).

With the railway project underway, China would account for at least half of Laos’ public debt. Laos has a history of repaying debts to China via long-term land concessions and access to natural resources. As a result of this project, thousands of Chinese traders and migrants have arrived in Laos, to expand their businesses and in search of job opportunities. There is no recorded significant movement of Laotians to China seeking employment, apart from the agricultural trade that occurs across the China-Lao border with rural Laotians crossing over to China to sell their harvest. Could a one-way human mobility to Laos create a crowding out of Laotians in the labour market?

There is no doubt that cross-border trade and investment will receive a boost. At the same time, gambling and corruption have risen due to this bilateral collaboration. There is no indication of jobs being created for Laotians as a result of the railway project. There is no indication of extreme poverty being reduced or investment in rural infrastructure being increased. It is unclear at this point if Laos is falling into a debt trap. It is unclear if Laos will be able to repay its debt. The question is, with a population defined by skill inadequacy, low literacy and numeracy, high unemployment, increasing emigration and poverty, how will the Laotian government be able to repay any debt without compromising investment in the welfare of citizens? If indebtedness sabotages the Laotian economy, would human mobility out of the country be catalysed?

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